Site Navigation

Site Mobile Navigation

Senators Introduce Proposal to Curb Inversions

By David Gelles May 20, 2014 1:17 pmMay 20, 2014 1:17 pm

A group of 14 senators introduced a bill on Tuesday that would effectively place a two-year moratorium on so-called inversions, halting the rush by United States corporations to reincorporate overseas to lower their tax bills.

The Stop Corporate Inversions Act of 2014 would essentially disallow any more inversions for two years, giving Congress time to pursue broad changes in the corporate tax code. Such an overhaul could make the United States rates more competitive with other countries, possibly reducing the incentive for companies to move overseas for lower taxes.

“Our current tax code unnecessarily encourages companies to shift their tax address offshore, eroding the U.S. tax base and endangering American jobs,” said Senator Ben Cardin, Democrat of Maryland and a member of the Senate Finance Committee. “In the longer term, I look forward to redoubling our efforts on broader tax reform legislation that can fix our corporate tax code and make it more competitive.”

Photo

Senator Carl Levin, Democrat of Michigan, is the lead sponsor of a bill to restrict inversions.Credit Michael Nagle for The New York Times

Dozens of companies have moved overseas in recent years through inversions — takeovers of smaller international rivals that allow them to reincorporate in countries like Ireland, Britain and the Netherlands. Pfizer, the big drug maker based in New York, had been attempting an inversion by acquiring AstraZeneca, but its offers have been rebuffed and it said it would not pursue a hostile deal. Many of the inversions have been done by health care companies. But technology companies, including Applied Materials, and even the banana producer Chiquita have also struck deals that allowed them to move overseas, at least for tax purposes.

Though companies argue that such moves are necessary to keep them competitive with global rivals that pay lower tax rates, many lawmakers in Washington think they are taking advantage of a loophole that allows them to skirt paying their fair share.

“These transactions are about tax avoidance, plain and simple,” said Senator Carl Levin, Democrat of Michigan and chairman of the Senate Permanent Subcommittee on Investigations, who is the bill’s lead sponsor. “The Treasury is bleeding red ink, and we can’t wait for comprehensive tax reform to stop the bleeding. Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform.”

Under current law, companies can move overseas if foreign shareholders own 20 percent or more of their stock. The most common way United States companies achieve that is by acquiring a foreign rival. The bill would increase that threshold to 50 percent for two years.

It was not immediately clear how much support the bill would receive from other senators. Of the 14 co-sponsors — which include Dianne Feinstein and Barbara Boxer of California and Tim Kaine of Virginia — all are Democrats except for one independent, Angus King of Maine.

“This is about leveling the playing field and rooting out flagrant tax abuse in our system that could lead to billions of dollars of lost revenue,” Mr. Kaine said. “In order to fully restore budget certainty, we need to look at abuses in the tax code as much as spending.”